ETF savings plan for retirement: how much does it bring?

The ETF savings plan is the flexible way to close the pension gap. Here I explain how it works, where its strengths and its risks lie, and how much it actually brings for Lena and Thomas. No jargon.

How it works

An ETF is a broad equity fund that simply tracks a whole market, for example thousands of companies worldwide. With a savings plan you put in a fixed amount every month. Over the years this grows into capital, and compounding works for you.

In retirement you then draw from that capital monthly. The key difference from a private pension: with an ETF the capital belongs to you, you can access it any time, and what is left you can pass on. In return you have to manage the drawdown yourself, and the capital can run out at some point.

Strengths and risks

Both sides openly:

• Flexible: you can change the rate, pause it, or reach the money in an emergency. Nothing is locked in.
• Low costs: good ETFs often cost only a fraction of the fees that classic products charge. Over decades that makes a big difference.
• Market risk: the value swings. Over long periods the broad equity market has been reliable so far, but a crash shortly before retirement can hurt.
• Not guaranteed for life: unlike a pension it is a pot you use up. If you live very long, it has to last accordingly.

Lena and Thomas with an ETF savings plan

As a reminder: Lena (30) had a gap of around 1,334 €, Thomas (50) around 572 €. We take the same amounts as with the private pension, so you can compare. All figures calculated with the app's formulas, in the realistic scenario and in today's purchasing power.

Lena pays in 150 € a month

37 years for the money to work. By retirement that builds up capital of around 143,000 € (today's value).

Thomas pays in 300 € a month

Only 17 years to retirement. By then around 82,000 € builds up (today's value).

ETF or private pension?

You may have noticed: the ETF brings more per month than the private pension (535 instead of 410 € for Lena). But that is not because it is simply better. With the ETF you use up the capital over the period. In our examples we assume a life expectancy of 87 (which you set yourself in the app). So the drawdown is calculated to make the capital last until 87. After that it is empty. The private pension pays less, but for life, however old you get. One is more money for a time, the other is security without end. Which fits you better is a real decision, not a pure maths question.

Realistic scenario, costs assumed as a flat rate, salary grows like the average, drawdown sustainable until the assumed life expectancy. Examples for illustration, not a forecast and not advice. The ways are not added on top of each other.

Run it for your own situation

How much an ETF savings plan brings for you depends on your contribution, your time horizon and the assumed return. In the app you can run it with your own figures and even compare it with buying pension points, entirely local, no sign-up and no tracking.